The labour deregulation option
The news for leading companies gets worse. The report finds that deregulation of labour markets is not the answer to our poor productivity performance; in fact, conversely, high wages are more likely to lead to high productivity. Although the reasons for this are complex, as are the mechanisms for measuring multi-factor productivity (measuring both capital and labour inputs), there are some simple factors at play, says Professor Ray Markey from the faculty of business, Macquarie University.
“There is a lot of evidence that shows high-performance workplaces are high in every other regard: high pay, high skill, high productivity and high job satisfaction,” says Markey. “There is confirmation of that in the McKell Institute report. In the period since we had more flexibility in labour market and industry relations through WorkChoices, jobs shifted to low-productivity parts of the economy … and haven’t grown in other sectors in the same way.”
Markey says in New Zealand introduced complete labour market deregulation in 1991, but productivity fell. “There is no incentive for employers to invest in tech and innovation when they can get cheap labour, and that is what’s happening in Australia,” says Markey.
What’s to be done?
Scary numbers and zealous definitions will not help leaders solve the problems they face in their own workplaces, and academics and advisors are keen to suggest practical solutions.
The EY report identifies one big problem with a relatively easy solution: a mismatch of skills in the workplace. “People have skills that are not being used,” says Markey. Conversely, people do not have the skills a company requires to achieve higher productivity and innovation.
Markey suggests conducting a gap analysis of skills available and missing against the company’s productivity goals, together with training and clear communication about the need and purpose of improving productivity as a first step.
Innovation is the key to productivity improvement, the McKell report argues. “Compared to businesses that don’t innovate, innovative Australian businesses are twice as likely to report increased productivity; 41% more likely to report increased profitability; twice as likely to export; and up to four times more likely to increase employment and social contributions” the report finds, quoting a government report from 2011.
Innovation requires investment, and this is where companies fall down. Markey says: “Australian employers tend to be parsimonious in what they spend on workforce development and training; they expect an external labour market to provide what they want and have relied on migrants for a couple of hundred years.”
The EY report argues a link between flexibility (as defined by control of workload and hours worked) and productivity, showing that 46% of those the report defines as “super achievers” have a lot of flexibility in their roles.
The report also found that “patchy participants”, the group that accounts for most of the time wasted in the Australian workplace, are young – 20 to 24-years-old, highly educated and convinced that their skills are not being used well, if at all. Compared to the national average, this group is less likely to see the point of increasing productivity, and see productivity as about career advancement rather than personal satisfaction.
It’s not me, it’s you
All reports and studies united in one universal chorus: managers need better education, particularly in communication skills. The manufacturing sector’s leadership has the lowest levels of education, and this is linked to the sector’s lack of innovation and adaptability.
For leaders who want to get the edge over their rivals, that is an opportunity.
What is measured, is managed, the adage goes. Markey says: “Measure something.”
“It is possible to have high profit and low productivity if you are a monopoly, for example.”
For an economy dominated by service businesses, Markey suggests that measuring improved quality (such as customer satisfaction) while reducing or holding costs might be a good measure to start with.
